Five Things You Need to Know: Why China?; Durable Goods Disorders; No Worries!; Pump It Up; Be Your Own Boss!
What you need to know (and what it means)!
Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Why China?
China's stock market plunged nearly 9% today... THE WORST STOCK MARKET DROP EVER IN THE HISTORY OF THE WHOLE ENTIRE WORLD! EVER! THE WORST EVER! Sorry. Just kidding. I was looking at too many new headlines. It was actually only the worst drop in 10 years.
- Of course, a drop like this requires a little perspective.
- For those of us trading in the U.S. markets, one of the more popular China-targeted exchange traded funds is the iShares FTSE/Xinhua China 25 Index (FXI).
- This morning the FXI has opened off a cool 7%.
- This takes the year-over-year gain for that ETF down to below 40%.
- And as Toddo noted on the Buzz & Banter this morning, Shanghai is actually still up more than 3% for the year.
- So what's the story here? Why China? Why now?
- Three things:
1) Next week China's parliament will meet, and key items on the legislative agenda include new measures to tighten up regulations and controls on China's free-wheeling banks.
2) China's central bank recently ordered banks to set aside 10% of deposits from February 25, the fifth such increase in deposit requirements in eight months, to slow down over-investment.
3) Excessive speculation. Look, you don't take on a 130% a year gain in your benchmark stock index without a little speculation.
- Meanwhile, as China acts to get its financial house in some kind of order, we're seeing spillover across the world.
- Brazil is off more than 4%.
- The German DAX is off more than 2.25%.
- The U.S. is so far peeling off nearly 1% in the S&P 500and almost 2% in the Russell 2000 and Nasdaq 100.
2. Durable Goods Disorders
- Durable Goods Disorders (DGD), a diagnosis in the DSM-IV recognizable by an economic release with no regard for conventional economic norms and an indifference to the bullish feelings of others.
- Diagnostic Criteria:
- Failure to conform to reasonably positive economic norms by coming in with a headline of -7.8%
- Market irritability due to the poor results shown by a fairly sensitive indicator of economic change, contributing to a nearly 2% decline in S&P 500.
- Deceitfulness, as indicated by fooling economists into expecting anything positive to appear in the report thanks to a better-than-expected December report
- Failure by firms to plan ahead for a collapse in Capital Goods (excluding aircraft) new orders, which were down a shocking 6%, the worst drop since January 2004
- Reckless disregard for a consumer slowdown in the purchase of big ticket items
- Irresponsibility in the Durable Goods Ex-Transportation number, down 3.1%
- Lack of remorse, general indifference to economists' opinions
3. No Worries!
That's the headline from today's Wall Street Journal story on banks keeping less money in reserve.
- We've noted the selloff in financials over the past week on the Buzz & Banter, remarking a number of times on the increasing number of technical breakdowns in Banks, Real Estate, Insurance and Finance stocks.
- Perhaps this is the reason for the breakdowns in certain financials: over the past few years banks have dramatically lowered the level of their reserves.
- Bank reserves are established to handle the percentage of their loan portfolios exposed to potential losses.
Chart: Wall Street Journal
- According to the Journal article, investors in financials have benefited greatly from the sharp falloff in bank reserve levels since that helps boost profits.
- "From 2004 to 2006, the nation's biggest banks received 37% of their earnings growth from reductions in their loan-loss reserves, according to a Feb. 12 Morgan Stanley report," the article noted.
- Meanwhile, problems building in the subprime lending segment are awakening regulators to the possibility that perhaps banks are overestimating the quality of their loan portfolios.
- The Journal, citing a report from the Center for Financial Research & Analysis, says a number of banks have drawn down their reserves for bad loans to "apparently unsustainably low levels."
- The common refrain in defense of the current low reserve levels is that banks are more sophisticated at measuring default risk and that current repayment problems are isolated to the weakest segment of borrowers.
- Sounds good. Except that, according to the Financial Times today, late payments and defaults in the so-called Alt-A market, catering to consumers with slightly better than subprime credit, are running at four times the historical rate.
- We could also point out that late payments and defaults are understated since a "readjustment" of the loan provisions keeps them out of the reporting criteria, but why spoil a solid case of denial?
4. Pump It Up
While we're busy refusing to spoil a solid cases of denial, we probably also shouldn't mention the fact that gas prices have jumped 13 cents nationwide over the past two weeks.
- The national price for regular unleaded gasoline hit $2.38 a gallon, up 13 cents from a year ago and the highest since last September, according to the federal Energy Information Administration's weekly survey of 800 service stations, a story in the Boston Globe noted.
- And the Lundberg survey of 7,000 stations showed that gasoline jumped almost 13 cents in the last two weeks to $2.35 a gallon.
- According to Merrill's David Rosenberg, every penny increase at the pump drains $1.3 billion out of household cash flow at an annual rate.
- Anyone notice retailers under pressure?
Retail HOLDRs ETF
5. Be Your Own Boss!
According to a recent survey released by The Conference Board, Americans hate their jobs more now than at any other time in the past 20 years.
- Twenty years ago, the first time the survey was conducted, 61% of all Americans said they were satisfied with their jobs, according to an article on MSNBC.com, citing a representative from The Conference Board.
- Today, less than half say they are satisfied with their jobs.
- The lack of satisfaction is strongest among workers under the age of 25, with less than 39% saying they are satisfied with their jobs.
- Of course, this story focuses on the negatives.
- We prefer to look on the bright side.
- So what are some of the "dream jobs" respondents 25 and under said they would prefer to have?
- Below is a list of the most popular Dream Jobs of 25 and under men, according to surveyors.
Most Coveted American Dream Jobs
1. Rich Retired Guy
2. President of Everything
4. Professional Sports Championship Winner
5. Handsome Fireman in Flame Resistant Universe Where No Fires Exist
Minyanville Executive Editor Minyanville Executive Editor Emeritus
7. Successful Limousine Rider Guy
8. Fast Money Correspondent
9. Tall, Catholic, and Reliably Heterosexual Tom Cruise
10. Model Dater
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